Category Archives: Taxes & Tax Fraud

Income tax audits are intimidating whether you are being audited personally or as a business owner. There is a right way and a wrong way to handle an audit by a state or federal taxing authority. It is easy to dig a hole for yourself, but awfully hard to get out of that hole.

Whether you attempt to handle an audit on your own, or opt to involve a professional who is experienced in these matters, there are some things you should know as you embark on your journey. I don’t ever suggest that a taxpayer submit to an audit alone. It is very helpful to have an experienced professional along for the ride. Not only can the accountant or attorney help you complete records requests, she or he can also act as a buffer between the taxpayer and the IRS.

The process of an audit is often one big negotiation. It is a give and take between both sides. Ultimately, both sides want the case closed, and the faster we can get to that point, the better. (Preferably with the least amount of pain for everyone involved.) Read More →

When one or both spouses have an ownership interest in a business, it is critical to get both income tax returns and financial statements for the entity. It is impossible to fairly evaluate the business and the income from it without both of these.

Many times we meet resistance from the spouse during discovery. It is common to hear “we already gave you the financial statements, why do you need the tax returns too,” or vice versa. Both are important because they provide different information. Occasionally the two will have identical information, but the vast majority of the time there will be different numbers and different levels of detail. We want as much information as possible on the business, so both are critical. Read More →

Tax audits are scary, especially if you’ve got unusual income or deductions. The assumption is that at the end of the process, you’re going to owe the government money.

You can help yourself in the audit process, however, by following 4 simple rules:

Shut up – You may think you’re helping by talking and volunteering information. You’re not. Even truthful answers can hurt you when talking to an auditor. The goal during an audit is to provide information but NOT raise additional issues or questions. There are right and wrong answers to the auditor’s questions, and the taxpayer often does not know the difference.

Hire a professional – A competent professional will know those right and wrong answers. She knows how to be consistent in answer and not contradict information already provided. She knows what documents will support the position you’re taking in the audit, and she can give the best explanations. Let her answer questions for you.

Prepare your documents – If you’ve done a good job of keeping records, this will be easy. Start pulling together documents right away, but don’t turn anything over until your attorney or CPA has gone through them. Do NOT volunteer extra data or documents to the auditor. Give him only what he needs to answer the questions that were asked.

Do not let the auditor on site – Whether you work from home or in an office, you do not want the auditor there. They could overhear something or see something they shouldn’t. All meetings with the auditor should take place at your attorney’s or accountant’s office. It is much easier to control the documents and the flow of information this way.

That’s the way it works with the Internal Revenue Service. You have to be able to prove the numbers on your income tax return. If you can’t, the IRS auditor will pick a number and it’s up to you to prove them wrong.

It sounds unfair, doesn’t it?

Of course it does, but that’s the way the law works in the U.S. In normal criminal cases, you’re presumed innocent until the government proves you guilty. In tax cases, it’s the other way around.

Taxpayers run into trouble when they don’t have documentation to support the numbers on their tax return. What if the IRS believes a business has unreported income? Maybe the company has bad documentation. The IRS may use bank records to prove their case, assuming that all of the deposits are revenue. They may make an assumption that additional revenue was not deposited and was concealed. They have all sorts of methods to calculate what they think these numbers are.

That’s where a forensic accountant comes in. She can help shoot holes in their theories and their methods. Things get complicated quickly, and you need an expert who is well-versed in the methods the IRS uses to calculate income.

I help attorneys evaluate the numbers in tax cases (either civil or criminal) and challenge the government’s numbers.

In this video, Tracy Coenen briefly defines and audit and how many people are being audited by the IRS. (Hint: A very low number of people are being audited, and people with higher incomes are much more likely to be audited. Watch the video to find out the numbers.)

With the end of the year approaching, it’s a good time to talk about some tax mistakes that can be very painful. With a tax code as huge and as complex as ours in the United States, there are countless mistakes we can make in preparing and filing our taxes. These are just a few that you might have the misfortune of making.

Report all income – This includes the income on W-2s from all of your jobs, as well as income on 1099s that you may have earned as in independent contractor. Did you know that you need to report all of your income even if you don’t receive a 1099? While a company only has to provide a 1099 if they paid you $600 or more, you’re still required to report the income even if it’s less than that. Or if a company forgot to send you a 1099, you still have to report the income.

Use a tax preparer – This is especially important if your taxes get complicated. Buying a rental property, moving to a new state, and having investments are all common things that can make your tax filing more difficult than it was before. The tax laws are constantly changing, and it makes sense to work with someone who is on top of those things. (But don’t go to H&R Block or other “big name” tax preparation places.)

Now is the time when everyone scrambles to get their tax situation in order. There are some tax moves you should make BEFORE the end of the year, so act now.

I was interviewed in 2008 on CNBC about year-end tax planning. The advice is still relevant today, and each one of these tips still applies. These are some really great things you should do before December 31.

Government investigations of white collar crimes almost always have one thing in common: They rely heavily on the analysis of financial information. Often, this includes combing through bank statements and credit card statements, as well as scrutinizing accounting records.

Some people think that analyzing this kind of data is simple. It seems like it is only a math exercise in which we’re checking dollar amounts and verifying the addition and subtraction. But there is much more involved, and it gets exponentially more complicated (pun intended) when there are large volumes of data.

Expertise in financial and accounting crimes is necessary to fully understand the issues and the potential criminal or civil charges that the government brings against a company or individual. To properly defend such a case, it is necessary to have a forensic accountant involved to help evaluate the data and the issues the government will raise. Read More →

You are being audited. These are some of the most dreaded words an individual or business will ever hear from a state or federal tax auditor. They invoke fear, panic, and sometimes anger.

Most of all, they create a need for documentation. Every number could be scrutinized. That means documentation must be produced to support the amount of each expense and the business purpose of the item.

Some of us are meticulous in our documentation, but if you are like most taxpayers, you have pockets of misplaced or destroyed data. Even worse, you may be in a situation where documentation was completely destroyed by a fire or flood. If you don’t have documentation, does that mean your deductions are automatically disallowed? Not necessarily. Read More →

Tax returns can be one of the most important pieces of information a forensic accountant evaluates in a divorce case. Of course, there are other very important financial documents, but income tax returns provide summary information about of lot of financial issues, including income, expenses, and assets. I typically recommend reviewing three to five years of tax returns, but the further you can go back, the better the picture you will get of the personal or business finances.

If a party claims that personal or business tax returns are unavailable for any reason, consider requesting the records directly from the Internal Revenue Service. This requires the consent of an individual or business owner, and can be done with Form 4506, Request for Copy of Tax Return.

On the business side, it will be important to compare the financial statements with the income tax returns. Because of differences in accounting rules and the tax law, numbers for the same period may differ between the financial statements and tax returns. Depreciation is one example of a line item that typically differs between the financial statements and income tax returns. The expert should investigate any differences between the financial statements and tax returns, and refer to the tax laws to confirm whether such a difference is legitimate.

Some of the key information that may be found in the income tax returns includes: Read More →